If the former, do you believe that if a remote worker moves from NYC to Idaho, and their employer cuts their pay by 25%, it is because their productivity has dropped by 25%? Or because their employer knows they can get away with paying them less in an area with lower cost of living / less high paying jobs?
It's both. Productivity has a very direct effect on the minimum amount they need to attract workers. If a low skilled worker can produce 100$ an hour of value, and you're paying them 10$ and hour, someone else will very quickly be willing to pay them 11$, or 12$, etc. Suddenly, you have to pay several times what you did before in order to keep your employees or attract new ones.
> If the former, do you believe that if a remote worker moves from NYC to Idaho, and their employer cuts their pay by 25%, it is because their productivity has dropped by 25%? Or because their employer knows they can get away with paying them less in an area with lower cost of living / less high paying jobs?
Same as the other answer. In NYC there are more companies competing for your employee, so you have to pay more to keep them. Competition in the middle of nowhere is restricted more so than in the middle of NYC.
Productivity only puts a ceiling on the amount they'd be prepared to pay for a worker.
It doesn't affect the minimum amount required to attract them. That's determined by competition (i.e. who else is out there) and leverage (how much they need the job).
This is why business leaders lobby hard to reduce public sector wages/pensions (so private sector doesn't have to pay as much to compete for workers) and public benefits (like universal health care), which reduces worker leverage => reducing wages => increasing profits irrespective of worker productivity.
Do business leaders lobby to reduce public sector wages and benefits? That's not something I've heard before. In any case, whether or not there is competition from the government, if there is a gap between productivity and wages, then there are profits to be had by private companies willing to do the arbitrage. In the case of such a gap, the government doesn't really matter unless they are paying above the productivity rate.
This is trivially disprovable. Did grocery stores increase the wages of their clerks once self checkout was a thing, or did they keep wages the same and lay off some of them?
Productivity only affects wages when there’s competition for labor, not when there’s competition for jobs. When there’s competition for jobs productivity gains are captured by the company, not the laborer.
> Do business leaders lobby to reduce public sector wages and benefits?
They absolutely do, yes. I’m genuinely baffled how you’ve never heard this. The Chamber of Commerce crowd is always trying to shrink governments (and their tax bills), and attacking public unions is a big part of this.
That doesn't disprove anything. Productivity is an input to and has an effect on demand, but it's not the only factor. It doesn't need to be the only factor to matter. Lots of things matter. Economics is a complex field.
You’re ignoring worker supply. If there are more workers than jobs available, wages will remain low regardless how productive they are. If there are few workers available the price of their labor will rise as employers try to outbid each other for the labor. Supply & demand for labor controls which side of the equation ends up in a bidding war for the other side.
The productivity of labor doesn’t set the price of labor, if that were true then labor saving devices would drive wages up, which they clearly do not. Rather it’s supply and demand that sets wages, with productivity setting the ceiling since few employers want to hire people at a loss.
If you WFH in NYC then move to Idaho while still working the same job then your productivity has not moved at all. If the employer tries to lower the salary it is simply because they think they can.
It’s also not clear if a employer could cut such wages by 25%; that has less to do with CoL and more to do with the labor market. Or to use your formulation; do workers charge for their services according to the local cost of living, or do they charge for their labor what the market will bear?
That said, lower paid jobs are also lower productivity jobs. There is obviously an upper limit to what a company is willing to pay that is based on productivity, and higher productivity also requires specialised skills.
No-one is going to be paid $100k to flip burgers at McDonald's both because that job does not produce anywhere near that and because it's easy to find people. If it became too difficult to find people salaries would not go very high because of the productivity cap and they'd find a way to do without people or shut down (because no-one is going to pay $100 for a Big Mac, either).
Now, they could pay a medical lawyer minimum wage if they could get away with. But the supply is quite small because it is highly skilled and productivity is very high, and so pay can be high and can remain high.
Maybe for smaller companies, but any business with an HR department, investors, or board of directors is going to pocket the gains rather than distribute it out via raises. And, in my experience, they even resist raising COLA rates despite the company consistently growing year over year and inflation beginning to rise.
I also assert that people wouldn't need to switch around jobs during their careers in order to get substantial pay raises if pay rose with productivity.
How does this fit into the discussion here? If a company earns 10% more in inflation-adjusted currency this year than last year, but headcount has increased < 10%, by definition the staff was more productive this year than last.
It's fairly easy for anyone to apply this calculation to the economy as a whole, or to a given subset. Find total revenue in period X and total revenue in a later period Y and the corresponding # of employees, and you can determine whether and how much productivity increased.
Objection: "but the minimum wage earners are not more productive, everyone else is driving the productivity gains." You can run the calculation on any low-wage industry you want, you will likely see roughly similar results.
Based on...? What employer do you know of that just willingly offers employees raises for no reason other than "you're producing more for the company so here's some free cash"? The only role I'm aware of at most companies that directly ties your output to your income is sales, and even that can be sketchy depending on where you work and how transparent they are with the financials.
Most publicly traded company's goals are to pay you as little as possible to retain you.
If you consider positions like janitors, bussers in restaurants, hotel housekeepers (etc) and ask the question "what has happened since 1968 which would've caused productivity for these jobs to increase by 150%?", what would the answer be?
This is why labor unions are so helpful for the working class.
Agree with your first objection. Believe this requires more data to be sustained. Minimum-wage workers have a poor bargaining position.
I honestly mean no offense, but that sentiment indicates a spectacular misunderstanding of capitalism.
PS: it looks like the federal minimum wage is still $7.25 [1], not $15. You can become richer.
How? If their productivity is $26 / hour but their market rate is $15 / hour, by paying them $20 / hour you'll just post lower profits than companies that pay them market rate.
At least, that's how it was supposed to work in theory.. Now that we see people out there going for improved wages/jobs in line with good capitalist doctrine, the business owners are all screaming in rage about a "labor shortage"
I still get to name my price. And once you see that I can undercut labor costs due to this, it makes no sense for either you or Bob to continue paying twice as much as I do.
And let's not pretend that if you don't have the very best workers, you can't compete. First of all, you can't identify the best. You hope to get lucky, but in reality, you're going to be paying not the best, but those adequate enough to perform the job reasonably well.
COVID assistance has changed the game. Because before, the choice was to have a job or starve homeless. You'd take almost anything in desperation. Remove desperation and people stop acting desperate.
This is the first time I've ever seen restaurant workers, delivery drivers, etc taking charge of their own careers the same way Silicon Valley tech workers do.
All of our laws and safety nets are designed around the idea that people will act in their own rational self-interest and hop jobs when it suits them, but I never saw that actually happening until this last year.
Practically speaking, it's relatively hard to enter into a market and outcompete existing firms for labor without a significant amount of capital to offset the existing assets of the employers you're competing with.
The other downside is that it can initially leave a business more vulnerable to a bad economy in the same way corporations buying back shares can make them more vulnerable. With that said, the solution is to slowly increase wages while also building a sufficient amount of capital to weather an economic downturn.
And at the end of the day, anything that went into business expansion and/or profits could have gone at least partially to higher wages instead.
https://en.wikipedia.org/wiki/Market_economy
Capitalism is about the private ownership of the means of production and profits.
But yeah, competition for labor (and other things) via differences in wages are attributes of a market economy.
Capitalism can be a healthy part of this, but sometimes it isn't.
Crony capitalism for instance can provide companies the opportunity to collude so they can artificially suppress wages, which distorts the market economy for labor.
https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_L...
Outside of small communes, any society that heavily relies on trust doesn't work.
That's not to say that capitalism works well, or that we can't reign in some stuff (public works, monopoly regulation, etc). But a capitalistic base is the only system we've figured out that works at all.
Anyways, your statement is not true. Capitalism absolutely has a moral compass, it had the moral compass of the consumptive patterns of society; if that compass points the wrong way then either we must take a hard look at ourselves, or, think about what policies are twisting consumptive patterns to go the wrong way.... Probably a bit of both.
To make this worthwhile to continue at all, this conversation first needs to clearly define capitalism. Capitalism is not the free market. Markets existed long before capitalism. Capitalism is exclusively paying people less than the value they produce, to create a profit for the employer.
To rectify that economic system's moral compass, you create incentives to moving towards worker-owned enterprise. Instead of the employer/owner running your gas station, the employees that actually work it have 1 share each. To own a share you have to actively work there. That model resolves most issues with capitalism. Worker's unions also resolve it, but in a less ideal way as the tension between employer-employee still exists. Which is just a slightly kinder model as master-slave, or lord-serf.
Not sure about the universe comparison. The universe is chaotic entropy as far as we know, but assigning human misery- that we actively create, to the universe is a bit much.
This is laughably naive. The power, then, devolves to whosoever authority gets to conjure the legal definition of "actual work". How can I be that person, and how can then use my power to enrich my friends and cronies and screw BuckRogers over? After all, all employees are equal, but some employees are equaller, and some are not even employees.
The authority to define what working there is decided upon by the shareholders, it's a democratic workplace. So you couldn't be that person on matter how hard you tried. That's kind of the point. To finally remove the master-slave class tension from the our places of work and replace it with democracy.
In this universe are often high-capital-expenditure endeavours. You WANT the wealthy to take the risk on those, and not the workers.
For example, a co-op of 20 needs a million dollars to create a factory to build widget X. Where does this co-op get the money from?
What happens when widget X fails? Are the losses evenly distributed among the co-op members?
What co-op-ing everything winds up doing, in effect, is either 1) socializing the losses of adventures of politically-connected "wantrepreneurs" who are adept at converting political capital, or 2) making participating in risky ventures only accessible to the economically wealthy.
So in the long run enforcing it is likely to cause more economic disparity, not less.
The majority of businesses actually are proven and stable business models. The local convenience store is pretty much the perfect cooperative opportunity. There’s really no reason for 7-Eleven out of Japan to be owning most convenience stores.
Venture capitalism still has a place in the ideal mixed mode economy.[0] For those risky ventures. But that’s really not what the majority of the economy should consist of. And it doesn’t. We’re just really misaligned in our model for what the majority of our economy is.
Unions did a good job of distributing wealth in a free market way. But those still drive out capitalist businesses to cheaper countries. Cooperatives have every incentive to stay here.
The impact of, say, Microsoft Office has been enormous on the median white collar worker's productivity. Such gains have been much smaller on low skill manual labor tasks.
Most minimum wage jobs in america are attendants, cooks, aides, etc.
Not the classic factory worker failing to reap the profits of improved capital machinery.